When Will Your Smartphone Really Replace Your Wallet?

NFC. The iPhone 5 and Passbook. Google Wallet. Square. PayPal. Every day brings news of new developments in mobile payments and mobile-pass technology. So when can we finally get rid of our wallets?

Not for a long time, unfortunately — at least a decade.

Even if your current smartphone is technologically capable of handling payments, passes and membership cards, and IDs, the real infrastructure will take up to a decade to get fully sorted out. For payments, especially, smartphones are taking on a lot of the functions of our wallets without fully replacing any of them.

“Before all venues accept payments with a smartphone, consumers cannot ditch their wallets,” Oren Levy, CEO of in-app payment platform ZooZ, said via email. “Otherwise, I will be able to pay at one store but not at the next one. For all merchants to accept payment with a smartphone it will take at least 10 years.”

Forrester Research estimates only one-fourth of U.S. consumers will own an NFC-enabled phone by 2016, with 100 million shipping in 2012. Until a solid majority of consumers own such devices, merchants have little incentive to create an infrastructure as receptive to smartphone payments as it is to cash and credit cards. That’s the largest hurdle wallet-abandoning hopefuls face.

Per a push from credit card companies like Visa, U.S. merchants are starting to upgrade their old POS systems to ones that support contactless payments. (Technically, they’re EMV chip compatible models.) The project is supposed to take three to five years, though Gartner analyst Mark Hung says a decade is more realistic. “It just takes longer for compliance,” Hung said. “It’s probably not going to happen within the hard deadlines these guys have set.”

Even then, smartphone-based payments have a few other problems to sort out before they can hit the mainstream. Competing platforms — including Google Wallet; AT&T, T-Mobile and Verizon-backed Isis; PayPal; and whatever Apple may have planned — promise to complicate matters, similarly to how our current system, in which some retailers accept American Express while others take only Visa and MasterCard, still forces us to carry multiple cards and cash.

Additionally, the banks and all the new hardware and software makers inserting themselves into the financial system will have to work out how to divvy up processing fees for purchases. They’ll also have to agree on how to handle the data gleaned from each mobile payment. Credit card companies, device manufacturers, and retailers could all benefit from learning more about the purchasing habits and consumer preferences that smartphone data could provide.

But there are already signs that this can all work. According to David Wolman’s The End of Money, the early adopters of technophilic Japan and South Korea could ditch their wallets much sooner than the U.S. Even Canada looks to be moving faster than us.

The iOS 6 feature Passbook. Photo: Jon Phillips/Wired

And even if we’re stuck with traditional payments for another decade, there’s every reason to believe that our wallets will be much thinner. Apps like Coupon Sherpa and Fandango and the upcoming Passbook feature in iOS are already replacing the need for things like paper coupons, boarding passes, and movie tickets. NFC and smartphone-based transit passes are starting to gain traction, too; New Jersey has jumped on Google Wallet for public transit, and San Francisco’s BART system has also been a pioneer in the phone-based pass system. The next 18 months should bring more municipalities on board, particularly as NFC technology gets faster and more efficient.

What about that other very important card in your pocket — your ID?

“In terms of using the smartphone to replace your government-issued IDs, the technology is already available,” Hung said. But it’ll probably be, yes, at least 10 years before the government warms up to accepting purely digital forms of identification. (Though there is at least one reported instance of U.S. customs accepting a digital copy of a passport.)

If you just can’t wait that long to carry less stuff in your pockets, look to your keys. Viper SmartStart has been letting people use smartphones to remotely lock, unlock, and start their cars since 2009, and auto manufacturers are building in even more smartphone-friendly features. When it comes to your home, there are already apps that let you remotely lock and unlock doors, provided you’ve got an internet connection and have installed electronic locks.

Of course, your wallet and keys never run out of power. If you move these functions to your smartphone, what happens when the battery dies? Ideally, nothing. The type of NFC chip embedded in phones requires no power. When you tap it against a corresponding reader, it generates a magnetic field that creates enough electricity in the chip for transactions and data transfer, even when your battery is dead.

So, yes, someday you’ll be able to live without a wallet and keys. But it might be a while.